Question

Difficulty: MediumMargin Accounts and Borrowing Requirements

A client establishes a margin relationship with a broker-dealer and purchases $300$ shares of a listed equity security at $\$12$ per share as the first transaction in the account. Under Federal Reserve Regulation T and FINRA Rule 4210, what is the minimum cash deposit required from the customer?

Answer: 2000 $

Answer

The minimum cash deposit required is $2000.

The total trade value is

3,600 (300 shares ×

12). While Regulation T requires 50% (

1,800), FINRA Rule 4210 imposes a minimum initial equity requirement of

2,000 for margin accounts on transactions between

2,000 and

4,000. Therefore, the greater amount of $2,000 must be deposited.

Step-by-Step Solution

1

Determine the total market value of the purchase

$3,600

Multiply 300 shares by $12 per share to find the total transaction value.

2

Calculate the Regulation T requirement

$1,800

Regulation T mandates a 50% initial margin requirement (

3,600 × 50% =

1,800).

3

Apply the FINRA minimum initial equity rule

$2,000

FINRA Rule 4210 requires a minimum initial equity of

2,000 for new margin accounts unless the total purchase amount is less than

2,000 (in which case 100% of the purchase value is required). Since

1,800 is below

2,000, the $2,000 rule governs.

Key Concept

FINRA Minimum Initial Margin Equity Requirement ($2,000 Rule vs Reg T 50%)

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Topics

Margin Accounts and Borrowing Requirements